Britain's Cameron Draws Line Under GlaxoSmithKline Scandal

Dec. 4.13 | About: GlaxoSmithKline (GSK)

I don't know if I'm the only one who noticed this, but the flurry of attacks on foreign companies that began quite suddenly during the summer has ended just as quickly, replaced by what looks like a longer-term series of investigations against high-level officials at major state-owned firms. This second wave of attacks is obviously much more politically sensitive since it targets well-connected local Chinese officials, many of them high-ranking executives at some of the country's leading state-run firms. Sensing that this anti-foreign campaign has now officially passed, visiting UK Prime Minister David Cameron has become a vocal supporter of GlaxoSmithKline (NYSE:GSK), the British drugmaker that was at the center of one of the biggest attacks against a multinational during the summertime campaign.

We'll take a closer look at Cameron's actual remarks shortly, which were at once both supportive but also avoided the question of the rampant bribery charges leveled at GSK. From a broader perspective, Cameron's remarks seem to acknowledge that foreign companies may be guilty of some dubious practices when they do business in China; but at the same time, his defense of GSK also underscores the fact that the British drugmaker and other multinationals are often forced to use such tactics because it's impossible to do business in China any other way in the current climate.

From a longer term perspective, the fact that Cameron is speaking positively about GSK also seems to show that the summertime assault on foreign firms is in the past and multinationals can return to business without too much worry of coming under new investigation. The list of investigations launched during the summer was quite long, ensnaring everyone from foreign milk powder makers to drug makers and even luxury car makers at one point or another.

GSK came to symbolize the campaign, coming under investigation for allegedly dishing out 3 billion yuan in bribes to get Chinese medical professionals to buy its drugs. (previous post) That probe got huge media attention, and even led to the arrest of several GSK officials. In remarks during his China trip this week, Cameron artfully avoided specific mention on the issue of bribery, which is quite common not only in the medical field but also in many other sectors.

Instead, the British prime minister simply offered up more general praise for GSK, calling the company a "very important, very decent and strong British business." (English article) Obviously one major responsibility of political leaders like Cameron is to promote major companies like GSK from their home countries. But at the same time, such politicians also need to be careful to avoid promoting companies accused of rampant misdeeds to avoid appearing to promote immoral and even illegal behavior.

Media also reported that GSK's CEO Andrew Witty was among a group of about 100 British chief executives to accompany Cameron on his trip. The report I read also cited an unnamed source saying that Britain had detected a recent softening of China's stance in the GSK case, which would explain why Witty felt comfortable enough to attend the trip without fear of being harassed.

While big foreign names are starting to relax, Beijing's focus seems to have shifted squarely to a more sustained campaign to root out corruption at big Chinese state-run enterprises. Top officials at names like PetroChina (NYSE:PTR) and Cosco have come under recent probes, and this week media said four executives at China Southern Airlines were being probed for corruption. (English article) All that said, Cameron's latest remarks seem to be drawing a line under the recent wave of probes against foreign firms, though I suspect the anti-corruption campaign at state-owned enterprises will continue for at least the next year.

Bottom line: British Prime Minister David Cameron's defense of GSK indicates a campaign against big multinationals has formally ended, as Beijing focuses on rooting out corruption at big state-run firms.